Analyze creditspreads as in Table 5.5.

Data given in table 5.5

Table 5.5 Gain expectation for credit spreads So = $80, r= 1%, T = 20(days), o= 20% Trade sell strike/ buy strike 80/85 calls 82.50/85 calls 82.50/87.50 calls 80/75 puts 77.50/75 puts 77.50/72.50 puts Net price at (credit) risk 1.33 0.41 0.55 Amt Simu- lation drift 1.34 0.40 0.51 3.67 -0.04 2.09 -0.04 4.45 -0.04 3.66 0.08 2.10 0.08 4.49 0.08 Prob. of Gain Ex- prob total pected loss (%) (%) gain 9 9 2 8 N 8 2 66 80 81 0.083 0.034 0.049 Gain rate (%) 41 29 20 67 0.125 62 80 0.045 39 81 0.065 27